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Gift cards still No. 1 on shopping lists, making the season merry for one Minnesota firm

Despite a glum holiday shopping outlook, gift cards remain the No. 1 gift choice during this holiday season,  following a trend of recent years. And that benefits Archway, a Rogers, Minn., firm that describes itself as “the largest distributor of gift cards in North America.”

The marketing fulfillment company predicts it will ship 145 million gift, prepaid and universally accepted financial cards to retailers, channel partners, consumers and businesses this holiday season. It also predicts it will ship a total of 500 million cards by the end of 2009 — half of all the cards purchased in North America.

Industry-wide consumer spending on gift cards peaked in 2007, according to the National Retail Federation. Its 2009 Holiday Consumer Intentions and Actions Survey reported that the average holiday shopper plans to spend $139.91 on gift cards this year, compared with $147.33 last year and down from a 2007 peak of $203.

The average value per card this year will be $39.80, compared with $40.54 in 2008. Consistent with last year, 77 percent of people will buy at least one card this holiday season. The survey, which polled 8,692 consumers from Nov. 3-10, also revealed total gift card spending is expected to reach $23.63 billion in 2009.

Despite the slowdown, Archway remains bullish.

“Gift card shipment levels are still high because of the benefits gift cards provide to both businesses and consumers,” said Kathleen Carter, vice president of business development at Archway. “Businesses utilize cards to pick up revenue in a tough market, and consumers are using cards to put a cap on holiday spending and help manage tighter budgets for travel and everyday expenses.”

There are also big changes under way in terms of how cards are marketed, used, regulated and even what they look like.

Information on your spending habits gathered from reloading and loyalty programs will be used by merchants to target you with incentives that will encourage holiday shopping at their stores, according to transaction processor First Data Corp.

In addition, consumers can expect to see merchants increasing use of gift cards as a consumer give-away to drive sales. In holiday 2008, more merchants than ever included a free gift card with the purchase of merchandise or a gift card, First Data reported.

“Overall, we’re seeing a convergence of loyalty and gifting cards,” says Jim Contardi, senior vice president of the prepaid division for First Data. “Starbucks merged the features and benefits of its rewards card with its gold card loyalty program. You’re going to see other companies doing the same, and reorienting toward spend cards. You receive the card as a gift, but it becomes a spend card when you reload.”

There’s also a continued evolution of how gift cards are marketed, says Contardi. “Carriers are becoming part of the gifting experience and cross marketing with other products,” he says. “Say you have a handheld gaming device you’re looking to sell at the counter, where you also sell gift cards used to buy games for that handheld device. Grandma walks in and buys the device and the gift card so her grandson can get the games he wants. Odds are he will spend more than value of card.”

And under new regulations coming next summer, consumers will have more time to use gift cards before they lose value and will have greater visibility to fees merchants charge on their cards.

While it won’t affect cards purchased for this holiday season, the Credit Card Accountability, Responsibility and Disclosure Act, also called the CARD Act, spells out new guidelines for credit and many types of gift cards. Gift cards and gift certificates can’t incur inactivity fees unless they go unused for at least 12 months, and the amount and terms of the fee must be disclosed to the user in advance.

For next year, First Data also sees the traditional credit card-size gift cards morphing into such new forms as stickers, key chains, lapel pins or even cell phones.

“By inserting an RFID chip in a product, that item becomes a payment device in front of a reader,” says Contardi.

A new iPhone application allows bar codes to be scanned from the Apple device. For incentive programs, this means a new method of delivering on-the-spot or micro-awards.

“The incentive could be delivered electronically — all of a sudden, a participant has a virtual wallet on their smart phone,” says Contardi. “It can be populated with funds, points or certificates, along with a message to the recipient as to why they’re getting it.”

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